October 28, 2008

White collar workers at Chinese branches of many multinational companies are now facing increased pressures and reduced salaries as their headquarters cut daily expenses to cope with the current global financial meltdown.

The crisis dealt its first blow by causing the closure of two toy factories in southern China’s Guangdong Province in mid October. The move resulted in a loss of over 6,000 jobs. Since then, more businesses in China, especially multinationals whose headquarters are in the center of the financial storm, are facing tough times.

The recession in the financial market hit most companies that make a profit from banks and financial companies. Wen Xiang, a mid-level manager at an American multinational company in Beijing, says he feels increased pressure in his job with his headquarters expecting more output despite scaling back on expenses.

Wen said his US-based headquarters wrongly expect businesses in China to remain strong, and are therefore pushing even harder on the local branch.

“But business has actually seen a decline with lesser demand. That means more responsibilities and less money to spend,” Wen said.

So, so, so many Western companies have hitched their stars to China and its 1.3 billion fat-walleted customers. And now they’ll be looking to their China offices to pull rabbits out of hats. China! That’s the answer! The one place where we can still make a big profit. The China Dream lives.

They’re all going to have a hard time of it because China’s getting hit, too. Not nearly as bad as Europe and the US, and it at least has the cash surplus to buy its way out of the hole – but it’s still going to suffer. Maybe the only recession-proof business out there is running a funeralhome. And that’s not funny; I remember in Hong Kong when unemployment hit 8 percent in 2001 and young men were killing themselves rather than lose face over having to apply for welfare. It was around that time that i first decided to move to China where, you know, recession is impossible.

The article seems to be about Chinese workers rather than foreign ones, which is an important distinction. Entire tranches of the economy out west are built around institutions carrying unsustainable debt, or leveraging against expected future profits. Of course these companies are going to try and cut costs… they are collapsing as credit contracts.

That being said, all the growth in terms of jobs for bilingual speakers in my cohort has happened with small and mid-sized companies focused on the Chinese market. It’s a great time to be learning/speaking Chinese since it’s an increasingly valuable asset that isn’t subject to inflationary collapse and it’s a flexible asset. I do think it’s important to draw a distinction between Chinese and non-Chinese speakers though.

Actually, I think that the downturn may turn out to be a good thing. I can recall the days when China was a hardship posting. In those days, there seemed to be more foreigners seriously interested in China, who were themselves interesting. Now, there seem to be a lot of foreign opportunists washing up on Chinese shores. I know of a foreign litigator from NY City who has come to China so that she can be a Partner in a law firm and practice Chinese labour law. She has no Chinese language, intellectual background. They’re just opportunists who aren’t serious about China. I don’t know why American clients pay for such rubbish. They must be hopelessly ignorant. Not a good sign. Hopefully, these people will leave China when the economic tide recedes.

I think that is the key regarding language skills. I’m an urban planner and while my firm has an “office” in beijing and have done projects in several Chinese cities, most of our work is still spread out around the globe. Mandarin isn’t too useful when doing site planning in Argentina – blingual locals seem to be working quite fine for us.

ABC wrote: “Mandarin isn’t too useful when doing site planning in Argentina – blingual locals seem to be working quite fine for us.”

This is the basic business model now—use inexpensive local labour and bring in outside foreign marketing people to be the “foreign face”. As a Yale-education, blue chip law firm lawyer once said: “They don’t want good. They just want CHEAP.”

In the legal profession, this model creates problems as “the foreign faces” are largely unqualified and incompetent in the local system, yet they are charging US$400, US$500 or more per hour as add-on billing to what the local Chinese do. Remember that Chinese lawyers are somewhat superfluous as they don’t have any power in the Chinese system. The system largely undermines, if not destroys, China’s badly-needed effort to create its own legal system.

Even NOT at MNC’s. I’d be surprised if we don’t all feel the pinch somewhere along the line. My (expensive) school has seen only 1-2% of the student body drop out for financial problems, but that could easily be the tip of the iceberg. They’re at the school to prepare for education abroad, which is a $200,000 expense the parents may very soon be reconsidering. I should *feel* secure, with a waiting list 10X the enrollment, but things can change further and faster here than most people expect. A quick look at the Shenzhen stock market’s 70% drop is just one example.

My former company, very conservatively managed and low on debt (last I knew), is suddenly a month late on payroll. Since their main revenues are from hydroelectric power (just about as stable as you can get), something must have gone badly wrong in their other businesses. I wouldn’t get too euphoric about China’s stability, or indeed my own seemingly secure position, just yet.

Well, when it comes to lawyers, foreign lawyers can only advise, but westerners can advise westerners better than Chinese with little or no western exposure can. Chinese lawyers who work for foreign law firms lose their right/license to operate in a Chinese court.

Also, last month one of the better known financial rags mentioned that after AIG’s bailout, it became known that 20% of China’s forex reserves existed as AIG corporate bonds. I was pretty surprised to read that and I began to wonder where else China has put its forex reserves other than “crates of cash in a warehouse”.

As for other foreign experts in China, well, the spectrum is pretty broad. But I really think that if Beijing and municipalities didn’t think they needed foreign expertise in areas like urban planning, mining, etc. they wouldn’t be handing out contracts to them. Having foreign experts practicing in China is actually useful in China though as that knowledge is taken by Chinese companies to Africa, Latin America and the Middle East.

About

A peculiar hybrid of personal journal, dilettantish punditry, pseudo-philosophy and much more, from an Accidental Expat who has made his way from Hong Kong to Beijing to Taipei and finally back to Beijing for reasons that are still not entirely clear to him…